“We are clearly in a pre-election period now in Nigeria and we have seen a slowdown on the reform front,” Richard Fox, Fitch’s London-based head of Middle East and Africa sovereign ratings, said on a conference call today. “We judge Nigeria by what they achieve and some of their more ambitious plans may not come to fruition until after the election.”
Fitch’s comments come a month after Moody’s Investors Service said Nigeria’s slow implementation of structural economic reforms is limiting its chances of a credit-rating upgrade, along with corruption, weak institutions and vulnerability to oil-price drops. Fitch rates Nigeria at BB-, three levels below investment grade. There’s “no reason” why the country isn’t at investment grade, Fox said.
A proposed law to change regulation and funding of the nation’s oil industry has been stalled in parliament since it was first sent to the National Assembly in 2008 and “it’s anybody’s guess if that’s going to emerge this side of the election,” Fox said.
Fiscal provisions in the Petroleum Industry Bill seek to raise Nigeria’s share of revenue to 73 percent from 61 percent, Petroleum Minister Diezani Alison-Madueke said in September. Energy companies operating in Nigeria say the terms will make offshore oil exploration unprofitable.
Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM), Chevron Corp. (CHEV), Total SA (FP) and Eni SpA (ENI) run joint ventures with the state-owned Nigerian National Petroleum Corp., or NNPC, that pump more than 90 percent of the country’s oil.
The reserves of Africa’s biggest oil producer, worth $48.5 billion, aren’t back to where they were before a 2009 banking crisis and need to improve, Fox said. While inflation, which has stayed below 10 percent this year, is a positive, Nigeria needs a longer track record of lower price increases, he said.
Per-capita income estimated at $1,631 last year by the International Monetary Fund “compares badly” with investment grade countries, said Fox.
Nigeria’s $1 billion sovereign wealth fund, whose chief executive officer said will start investing this month, has “very little in it,” according to Fox. Angola, Africa’s second-largest oil producer, announced its own $5 billion fund in October.
“The fiscal situation in Nigeria is very challenging to understand,” said Fox. “Nigeria struggles to implement its capital spending budget and this has been a big issue politically.”
The government’s 2013 budget, approved in February by President Goodluck Jonathan, set aside 1.6 trillion naira ($9.9 billion) for capital projects, compared with 2.3 trillion naira for recurrent expenditure.
A state of emergency in three northeastern states declared last month to combat increased militancy by Islamist insurgents will probably have little negative effect on Nigeria’s economy, said Fox.
Jonathan imposed emergency rule in Borno, Yobe and Adamawa states on May 14 to step up the fight against militants who he said were taking over parts of the country. Nigeria has faced worsening sectarian turmoil in the north, where the government has been battling Boko Haram since 2009.
The north “is not the economic power house of the country,” said Fox. “As of today it’s not something we’re thinking about too negatively.”
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